11/25/2002 @ 12:00AM

Levitating a Fallen Angel

It’s a long way down from the Nifty Fifty. Polaroid’s leading-edge instant cameras made it one of the 50 elite stocks to own in the early 1970s. But the company has been undermined by the rapid emergence of digital imaging and crippled by debt taken on in the 1980s to avoid a takeover by Roy Disney’s Shamrock Holdings. In its October 2001 bankruptcy Polaroid’s stock became worthless.

Picking up the pieces of what is now a private company is One Equity Partners, a $3.5 billion venture capital arm of Bank One. On July 31 One Equity bought 65% of Polaroid’s assets (except its underfunded pension fund) for $255 million, with the other 35% to be doled out to unsecured credit holders by the bankruptcy judge. While Polaroid executives declined to discuss future plans, it’s clear the company is betting its rebound on the digital market.

Not that Polaroid hasn’t tried before. The company is distantly behind Sony, Olympus and Kodak in digital cameras, with less than 5% of the $3.2 billion U.S. market. Former Polaroid diehards, like insurance adjusters and real estate agents, are flocking to digital, eroding highly profitable sales of instant film. That’s one reason revenues dropped 30% last year to an estimated $1.3 billion.

To get itself into the digital game Polaroid is now trying a backdoor approach–self-service kiosks where people will be able to plug in the memory cards from their digital cameras, view each image and print it, using proprietary Polaroid technology. The company claims that such prints will be equal in quality to film prints. “This is the Holy Grail the digital camera industry has been looking for,” brags Polaroid spokesman Herbert N. Colcord. Test runs in shops in Massachusetts are planned this winter, with the aim of a national rollout by the end of 2003.

The company is also looking for ways to milk its once-premier brand name. Its first foray into licensing was a deal with Wal-Mart to slap the Polaroid name on Agfa 35mm film. The company hopes to do the same with digital cameras through its new deal with Hong Kong’s WWL.